2025 (6) TMI 980 - HC - Income Tax

Supreme Court Affirms Comprehensive Tax Immunity Under Direct Tax Dispute Resolution Scheme for Section 263 Order

Principal Commissioner Of Income Tax-I Versus Shri Ashok Kumar Maheshwari, Jaipur

The SC upheld the ITAT's quashing of a Section 263 order, finding that a Direct Tax Dispute Resolution Scheme (DTDRS) certificate grants comprehensive ... Penalty proceedings u/s 271AAB - Revision proceedings u/s 263 - petitioner applied under the amnesty scheme and was issued certificate under the Direct Tax Dispute Resolution Scheme, 2016 - Tribunal quashing the order passed u/s 263 - HELD THAT:- Under Section 204(3) of scheme the order passed under Section 204(1) is conclusive and matter covered by such order shall not be reopened in any proceedings under the Act. Once there is immunity granted to the respondent against penalty proceedings, the fact as to whether the penalty should have been imposed under Section 271AAB or under Section 271AB of the Act, would make no difference. The immunity is general against the penalty proceedings and not with regard to a particular provision. The revision on the basis of the audit objection for passing a de novo order as the penalty should have been imposed under Section 271AB cannot be sustained in view of the immunity granted to the respondent. Revenue appeal is dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court were:i) Whether the Income Tax Appellate Tribunal (ITAT) was justified in quashing the order passed under Section 263 of the Income Tax Act, 1961 (the Act) on the ground that the Principal Commissioner of Income Tax (PCIT) had no jurisdiction to invoke Section 263 when the assessee had been granted a certificate under the Direct Tax Dispute Resolution Scheme, 2016 (DTDRS);ii) Whether the ITAT's quashing of the Section 263 order was perverse given that Section 208 of the DTDRS expressly excluded search cases from eligibility, and the assessee had allegedly concealed the fact of a search having been conducted;iii) Whether the ITAT's quashing of the Section 263 order was perverse where the order was initiated on the basis that the penalty order was erroneous and prejudicial to the interests of the revenue;iv) Whether the ITAT was justified in quashing the Section 263 order without applying the legal principles established by the Supreme Court in Malabar Industrial Co. Ltd. v. CIT, which held that an order that is erroneous due to incorrect assumption of fact or law, or passed without application of mind or in violation of natural justice, can be set aside under Section 263.2. ISSUE-WISE DETAILED ANALYSISIssue i) Jurisdiction of PCIT under Section 263 post issuance of DTDRS certificateThe relevant legal framework includes Section 263 of the Income Tax Act, which empowers the PCIT to revise an assessment order if it is erroneous and prejudicial to the interests of the revenue. The DTDRS, introduced under the Finance Act, 2016, provides an amnesty scheme allowing taxpayers to settle disputes and obtain immunity from penalty and prosecution under certain conditions. Section 204(3) of the DTDRS states that the order passed under the scheme is conclusive and the matter covered shall not be reopened under the Act.The Court noted that the respondent had obtained a certificate under the DTDRS, which granted immunity from penalty proceedings relating to the disputed tax for the relevant assessment year. The certificate explicitly provided immunity from instituting any penalty proceedings under the Income Tax Act.The Court reasoned that once immunity is granted under the DTDRS, the jurisdiction of the PCIT to invoke Section 263 to revise the penalty order is effectively barred. The immunity is general and not limited to any specific penalty provision, thus covering penalty proceedings under both Sections 271AAB and 271AB.Therefore, the ITAT was justified in quashing the Section 263 order on the ground that the PCIT had no jurisdiction to revise the assessment once the DTDRS certificate was granted.Issue ii) Eligibility under DTDRS and concealment of searchSection 208 of the DTDRS excludes cases where assessments are finalized under Sections 153A or 153C of the Act, which typically relate to search and seizure cases, from availing the scheme. The revenue contended that the respondent was ineligible as a search was conducted on the Nuwal Group, of which the respondent was a member, and that the respondent had concealed this fact while applying under the scheme.The respondent's counsel argued that the assessment was finalized under Section 143(3) read with Section 153B, not under Sections 153A or 153C, and thus the bar under Section 208 did not apply. The Court observed that the department had not challenged the certificate issued under the DTDRS before the tribunal or in the present appeal, and the certificate had attained finality.The Court found the revenue's challenge to the certificate to be a 'fallacy' in the absence of any prior challenge. It was an arguable question whether the respondent was eligible under the scheme, but since no challenge was made to the certificate, it remained valid and binding.Thus, the Court upheld the immunity granted under the DTDRS certificate despite the search having been conducted, as the assessment was not finalized under the excluded sections.Issue iii) Validity of Section 263 order initiated on penalty groundsThe revisional order under Section 263 was passed on the basis of an audit objection that the penalty should have been imposed under Section 271AB instead of Section 271AAB, and directed a de novo penalty order. The revenue argued that the penalty order was erroneous and prejudicial to the revenue's interest, justifying revision.The Court held that since the respondent had immunity from penalty proceedings under the DTDRS certificate, the question of whether penalty was imposed under the correct provision was immaterial. The immunity covered all penalty proceedings, and therefore the revisional order directing a de novo penalty order could not be sustained.The Court concluded that the substantial questions of law framed did not arise from the tribunal's order, as the immunity under the DTDRS was determinative.Issue iv) Application of principles from Malabar Industrial Co. Ltd. caseThe Supreme Court in Malabar Industrial Co. Ltd. v. CIT held that an order could be revised under Section 263 if it was erroneous due to incorrect assumption of fact or law, or passed without application of mind or in violation of natural justice.The revenue contended that the ITAT erred in quashing the Section 263 order without appreciating this precedent. However, the Court observed that the immunity granted under the DTDRS rendered the question of error in the penalty order academic, as the immunity barred reopening of penalty proceedings altogether.Therefore, the Court found no error in the ITAT's approach in quashing the Section 263 order, as the immunity was a conclusive bar to revision irrespective of the correctness of the original penalty order.3. SIGNIFICANT HOLDINGSThe Court held:'Once there is immunity granted to the respondent against penalty proceedings, the fact as to whether the penalty should have been imposed under Section 271AAB or under Section 271AB of the Act, would make no difference. The immunity is general against the penalty proceedings and not with regard to a particular provision.''Under Section 204(3) of scheme the order passed under Section 204(1) is conclusive and matter covered by such order shall not be reopened in any proceedings under the Act.''The revisional order passed under Section 263 directing a de novo penalty order cannot be sustained in view of the immunity granted to the respondent.'Core principles established include:The immunity granted under the DTDRS is conclusive and bars reopening of penalty proceedings under the Income Tax Act, including revision under Section 263.Eligibility under the DTDRS and validity of the certificate must be challenged before the appropriate forum; absent such challenge, the certificate is binding.Once immunity is granted, the correctness of the penalty provision invoked is immaterial to the jurisdiction of revisional authorities.Final determinations:The ITAT was justified in quashing the Section 263 order for lack of jurisdiction due to immunity under the DTDRS certificate.The revenue's challenge to the eligibility of the respondent under the DTDRS was not entertained as no prior challenge to the certificate was made.The revisional order directing a de novo penalty order was set aside.The appeal was dismissed.